Govs ready speeches as fiscal woes persist

As governors prepare their 2010 state of the state addresses, at least 36 of them are still struggling to close continuing budget deficits for the current fiscal year, while worrying about new gaps looming in their 2011 spending plans. The shortfalls show no signs of going away as state revenue continues to fall far below projections, leaving some lawmakers and the public poised to rethink the role of state government.

New York Gov. David Paterson (D), whose current $3.2 billion budget gap is one of the worst in the country, will be among the first to deliver a state of the state address Jan. 6. One of 16 incumbent governors on the ballot next year, Paterson has already made deep, unpopular cuts in Empire State spending and more are expected, despite New York’s having raised a record $6 billion through tax increases in 2009.

Kentucky Gov. Steve Beshear (D), who is not up for re-election this year, will also give his address Jan. 6 as his state stares down a current 2 percent budget gap. Beshear has already raised taxes on cigarettes and the state’s world-famous bourbon to raise needed revenue.

California Gov. Arnold Schwarzenegger (R) is expected deliver his last address to the state Legislature early in January amid California’s punishing $6 billion budget shortfall that has already forced deep spending cuts. Schwarzenegger is term-limited and not allowed to run again.

Nationwide, the Great Recession has devastated state budgets, creating nearly $460 billion in total deficits from 2009 through 2012 projections, according to state budget analysts. With tax revenues in ruin and no signs of improvement, state budgets will once again dominate legislative sessions.

To deal with overwhelming deficits, states are expected to make additional cuts from programs, eyeing many that have already been slashed, and enact tax or fee hikes despite their “politically toxic” nature as 2010 elections approach, Council of State Governments senior fiscal analyst Sujit M. CanagaRetna said.

“Circumstances are going to force them to deal with it,” CanagaRetna said. “2010, it’s going to be rough.” There are 37 gubernatorial elections on tap in 2010 and legislative races in 46 states.

“Anything and everything’s on the table,” said Todd Haggerty, policy associate at the National Conference of State Legislatures, saying states have “cut the fat, cut the muscle and are now cutting bone. “The easy decisions have already been made,” Haggerty said.

Legislatures looking for solutions are considering drastic changes even in services delivered by previously protected programs, such as K-12 education and public safety. Indiana’s Republican Gov. Mitch Daniels, for example, is seeking $300 million in cuts from K-12 education, and others are expected to do the same.

“The economic fallout has hammered state budgets with an intensity we haven’t seen since the Great Depression,” CanagaRetna said. “The way that we have cut and slashed governments indicates that we’re only going to be able to provide the most basic services.”

Already in the current fiscal year, lawmakers have closed $149.5 billion in deficits after facing $40 billion in shortfalls a year earlier, according to the NCSL. But those stopgap measures weren’t enough against a wave of revenue projections that are even worse than last year’s and new gaps have opened.

At least 36 states have seen the current fiscal year’s previously plugged gaps reopen to $28.2 billion, according to NCSL data. In the next two years at least, that trend will continue. For 2011, 35 states expect to face budget deficits of $55.5 billion. And in 2012, 23 states already project they will face a collective $68.8 billion gap.

But the deep spending cuts made in the past mean not every state will be able to cut its way to a balanced budget. Many are expected to raise taxes and fees to help ease the fiscal crisis. Already, 29 states raised $24 billion in revenue through tax or fee hikes for the 2010 fiscal year, the most in three decades, according to a National Association of State Budget Officers report.

Another issue facing governors and legislatures is pending health care reform on Capitol Hill, which many state executives from both parties see as an added financial burden their states simply cannot afford.

As for more federal help for states – the stimulus included $300 billion in state aid – the politics of governors pushing for more will be tricky, given increased focus on the growing national debt.